225. Indirect Methods Of Moving Gold

Indirect shipments are of great variety but are all founded on the idea of sending gold to some point where it can be used to buy, cheaply, exchange on some other point. Of these transactions, the one best known is the so called "triangular operation" in which the gold is shipped to Paris for the purpose of buying exchange on London. The succession of steps is as follows: The metal is shipped to the French capital; exchange on London is purchased with the proceeds; this exchange is then remitted to London for credit of the American shipper of the gold; the shipper draws his sterling draft on London against the newly created balance.

The full details of an actual shipment are as follows:

48,500 ounces bar gold .995 fine at $20.5684

$997,567

Freight, 1/8 per cent

$1,247

Insurance, 4 1/2 c. per $100

450

Assay office charge 4 c. per $10

400

Interest 6 days at 2 per cent

333

(From time gold is shipped to Paris until the drafts on London can be sold.)

Cartage and packing

60

Com. in Paris .

250

2,740

$

1,000,307

Banque de France buys gold .995 fine at fcs. 3419.81 per kilo (= 106.3705 francs per troy ounce)

48,500 ounces at fcs. 106.3705 = fcs. 5,158,969.

Fcs. 5,158,969 at 25.10 = £205,536.

£205,536 at 486.70 =

1,000,342

Profit

$

35

Conditions under which there is practically no profit or loss.

New York Exchange on London ..

486.70

Paris Exchange on London

25.10

Money in New York

...........2 per cent

226. Profits On Shipments

Under ordinary circumstances, if a banker makes between $500 and $1,000 on a million dollar shipment he considers himself very well paid. Considering all the trouble which the earning of this amount involves, the business is not over-attractive. The fact is mentioned, not to show that gold exports are not important but rather to show why it is that a great many bankers will not go in for them.

A number of houses in fact never undertake gold shipments under ordinary circumstances.

There is further to be considered the over-draft which results from a shipment of this kind and which at times makes a strain on a firm's credit. It is to be borne in mind that the drafts which are sold on London at the beginning of the operation are immediately sent over there by the buyer. On the other hand the gold which goes to Paris takes some time to arrive there and even after its arrival one or two days must be allowed for assaying and crediting it, so that the "cover" for the drafts which have been drawn on London does not arrive in London until three or four days after the drafts have been presented. Naturally an over-draft of this amount is only possible where the house in London and the house in New York are closely affiliated. When the drafts are drawn the New York house advises by cable that gold has been shipped to Paris for cover. But even at that, unless the London house has explicit faith in its New York correspondent it will hardly be willing to pay out a million dollars even with the certainty of reimbursement within three days.

For this reason the business of shipping gold is coming to be more and more confined to a few bankers who have the facilities, whose managers are adept in figuring out any possible profit, and who are willing, both for the sake of the advertising and of the sometimes very small profit, to go to the trouble which gold shipments necessarily involve.